NATIONAL PAYMENTS CORPORATION OF INDIA ,MUMBAI vs. CIT(EXEMPTIONS), MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWALAssessment Year: 2020-2021
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of Commissioner of Income Tax (Exemptions), Mumbai, vide order no. ITBA/REV/F/REV5/2024-25/1075324373(1), dated 31.03.2025, passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), for Assessment Year 2020-2021. 2. Grounds taken by the assessee are reproduced as under: “1) The Learned Commissioner of Income Tax (Exemptions) ["Ld. CIT (E)"] erred in initiating revision proceedings under section 263 of the Income Tax Act, 1961 ("the Act"). Your Appellants submit that the initiation of proceedings under section 263 of 2 National Payments Corporation of India AY 2020-21
the Income Tax Act, 1961 is illegal and bad in law and the order of the Ld. CIT (E) be quashed.
2) The Ld. CIT (E) erred in stating that there is failure on part the Assessing Officer to apply correct position of law for AY 2020-21 on the ground that Ld. AO had passed the Assessment Order without making necessary inquires and verification before allowing exemption u/s 11 of Income Tax Act, 1961 since the Appellant company was hit by proviso to section 2(15) of the income tax act, 1961 for AY
2017-18 to AY 2019-20. Looking into the facts & circumstances of your Appellant it is submitted that specific queries with respect to clarification "on business income of the trust" and "detailed note on activities carried on by NPCI and explanation as to why the activities of the trust is not hit by proviso to section 2(15) of the income tax act, 1961" were already raised by the Ld. AO in his notices dated 29/06/2021 &
12/11/2021 during the course of assessment proceeding. In response your
Appellant vide acknowledgement nos. 154780881140721, 239793631171221,
239970781171221 and 245265231171221 uploaded the necessary details alongwith the Annexures. Thereafter Ld. AO after due application of his mind and in accordance with law, passed the assessment order by accepting the claim of exemption. Therefore proceedings under section 263 of the Income Tax Act, 1961 is illegal, bad in law and the order of the Ld. CIT (E) be quashed.
3) The Ld. CIT (E) erred in applying deeming provision of explanation 2 to Section 263 on the ground that Ld. AO failed to examine or conduct requisite inquiries for the relevant issues. Looking into the facts & circumstances of your Appellant it is submitted that specific queries with respect to relevant issues were already raised by Ld. AO. Thereafter after due application of mind and in accordance with law, Ld.
AO passed the assessment order. Therefore, assessment order passed is not erroneous & prejudicial to the interest of the revenue.
This issue raised by the assessee is in respect of initiation of revisionary proceedings u/s 263 and passing the revisionary order thereafter. Broadly, the assessee’s contentions are that the Ld. AO has failed to apply correct position of law as held by Ld. Commissioner of Income-tax (Exemptions) [in short ‘the Ld. CIT(E)’], since the Ld. AO did not carry out necessary inquiries and verification while allowing exemption u/s 11 as assessee is hit by proviso to section 2(15) of the Act. According to the Ld. CIT(E), claim of exemption u/s 11 was denied to the assessee for A.Y. 2017-18 to A.Y. 2019-20 since hit by proviso to section 2(15), fact of which formed the basis for taking up the impugned revisionary proceedings. 3.1. Broader contentions of the assessee are that it had made detailed submissions in the course of assessment proceedings to the 3 National Payments Corporation of India AY 2020-21
specific queries and clarifications sought by the Ld. A.O. on the business of the trust and activities carried by the assessee not hit by proviso to section 2(15) of the Act. Ld. A.O. had applied his mind and after taking into consideration the provisions of law, completed the assessment by accepting the claim of exemption. Hence, the impugned revisionary proceedings and the revisionary order thereafter are bad in law, liable to be quashed.
4. Brief facts of the case are that assessee filed its regular return of income on 11.02.2021, reporting total income at Nil. Case of the assessee was taken up for scrutiny assessment by issuing notice u/s 143(2). Reasons for the said selection are listed below:
i.
Business Income of Trust ii.
Accumulation of Income by Trust iii.
Receipts of Trust iv.
Refund Claim v.
Transaction of Trust with Specified Persons vi.
Foreign Outward Remittance
1 In the course of assessment proceedings, notices u/s 142(1) were issued on 12.11.2021 and 23.03.2022. Details of the notice issued and replies filed by the assessee are tabulated below: Sr. No. Dates of Notices issued by AO U/s. Date of Online Reply filed Acknowledgement No. 1 29/06/2021 (Annexure 1) 143(2) ,14/07/2021 154780881140721 2 12/11/2021 (Questionnaire of Points) (Annexure 2) 142(1) 22/11/2021 869065191221121 17/12/2021 239793631171221 (Annexure 4) 17/12/2021 239970781171221 (Annexure 5)
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National Payments Corporation of India
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17/12/2021
245265231171221
(Annexure 6)
22/12/2021
320560351221221
3
23/03/2022
(Annexure 3)
142(1)
31/03/2022
564193491310322
2 In the first notice, specific query was raised vide point No. 5 which stated “brief note of activities carried out during the F.Y. 2017-18 relevant to A.Y. 2018-19. Submission of the annual report would not be treated a replacement of the brief noted”. Further, in the same notice in query at serial No. (iv) titled as “with respect to business income of the trust guideline provide the following “……(iv) your explanation regarding the above stated income of the trust with object for advancement of general public utility, within the mandatory limit mentioned in the proviso to section 2(15)”. In the second notice specific query was raised with regard to details of utilization of accumulated amount along with evidences. The assessee made detailed submissions with corroborative documentary evidences for which e-proceeding response acknowledgement dated 17.12.2021 is placed on record. Ld. A.O. completed the assessment by taking note of all these submissions. In the assessment order, he noted that statutory notices necessary for scrutiny assessment were issued and duly served on the assessee which were duly complied. Thus, he completed the assessment by accepting the income returned by the assessee. 5. Subsequent to the above, from the perusal of the records, the Ld. CIT(E) drew his preliminary consideration that from the records of the earlier years from A.Y. 2017-18, 2018-19 and 2019-20, it has been held that assessee is hit by amendment to section 2(15) made in Finance Act, 2015 w.e.f. 01.04.2016 and thus, assessee has lost its 5 National Payments Corporation of India AY 2020-21
charitable character for the respective assessment years. Accordingly, claim of exemption u/s 11 or 12 was denied. Contrary to this, ld. A.O.
has allowed full exemption in the year under consideration without taking into account the aforesaid position taken in the earlier years which are on same set of facts. According to him, there is a failure on the part of the Assessing Officer to apply the correct position of law and thus, he prima facie observed that the assessment so completed by the Ld. A.O. is erroneous in so far as prejudicial to the interest of Revenue.
5.1. A show cause notice u/s 263 was issued dated 04.03.2025 to which assessee made a detailed and exhaustive submission. The summary of the submissions made by the assessee in revisionary proceedings are as under:
(i) Assessee submitted that in response to notice u/s 142(1), issued during the course assessment proceedings, detailed submission was made before Assessing Officer. And hence the aforementioned issue has already been examined.
(ii) Assessee submitted that it is prohibited by its memorandum of association (MoA) from carrying of any business activity and therefore first proviso to section 2(15) regarding commercial activity cannot not be invoked.
(iii) It was submitted that on the same aforementioned issue for Α.Υ. 2010-11 and A.Y. 2012-13, Coordinate Bench had decided in favour of the assessee.
(iv) It also placed reliance on various case laws to submit that revision proceedings u/s. 263 cannot be invoked.
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3. After taking into account the submission made by the assessee, ld. CIT(E) by taking note of the objects contained in MoA observed that this can at best be taken as object of advancement of any other object of general public utility as defined in section 2(15) of the Act. According to him, assessee has received income from providing services as platform in respect of transactions conducted for member banks. Assessee has also paid service tax for the services rendered to its member banks. Hence, its purpose is not a charitable purpose. He further observed that objects of the trust are in the domain of advancement of general public utility by taking into account the specific amendment brought by way of proviso to section 2(15) w.e.f. A.Y. 2009-10. He noted that nature of activity of the assessee is very much in relation to trade, commerce or business and thus, is hit by proviso to section 2(15). He then referred to Explanation 2 to section 263 introduced by Finance Act, 2015 to hold that there is a failure on the part of the AO to conduct proper inquiries and verifications which rendered the impugned assessment order erroneous and prejudicial to the interest of the Revenue. The impugned assessment order was thus, set aside for de novo assessment with a direction to make necessary detailed inquiries on the issues listed by him. 6. Before we deal on the issue, it is important to take note of the background under which the assessee was set up, the objects which are required to be fulfilled by it and the nature of activities and benefits derived by the general public from its activities. These have been elaborately dealt and discussed in the decision of the Co-ordinate Bench of ITAT, Mumbai in assessee’s own case for A.Y. 2010-11 and 2012-13 in ITA No. 5431/Mum/2015 and ITA No. 3382/Mum/2016, order dated 06.07.2020. These details were furnished by the assessee in the course of assessment proceedings which are placed on record in 7 National Payments Corporation of India AY 2020-21
the Paper Book. The relevant details in this respect are extracted below for ready reference:
“1.1 Government of India had introduced 'The Payment and Settlement
Systems Bill 2006' in year 2006 to facilitate the oversight of Payments and Settlements Systems in the country by Reserve Bank of India. After review of the bill by a Parliament Committee i.e. Standing Finance Committee (SFC), the said bill was introduced in the Lok Sabha and Rajya Sabha for approval.
After discussion, the said Payment and Settlement Systems (PSS) bill was passed by Lok Sabha on 26/11/2007 and became an Act (Annexure -12.1).
Section 2(1) (i) of the PSS Act 2007 defines a payment system to mean a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange (Section 34 of the PSS Act 2007 states that its provisions will not apply to stock exchanges or clearing corporations set up under stock exchanges). It is further stated by way of an explanation that a "payment system" includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations. In terms of Section 4 of the PSS Act, 2007 no person other than the Reserve Bank can operate or commence a payment system unless authorized by the Reserve Bank
1.2 The Hon'ble Finance Minister of India, while presenting the PSS Bill in Parliament, 2007 had indicated the need for setting up of a robust Payment and Settlement Infrastructure.
To quote "There are also 1068 clearing houses in this country. Today clearing is not regulated. This is being done under a contractual arrangement. So, these 1068 units will come under the National Payment Corporation of India, which will be licensed by the Reserve Bank of India and regulated by the Reserve Bank of India...." Unquote
Hon'ble Minister further committed that NPCI would be set up as a Non Profit
Corporation and a Section 25 company and that no profit money will be distributed as dividend to any shareholder but will be kept with the NPCI
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only for improving the equipment and to cover the cost. (Extract from the speech of Hon'ble Finance Minister in the Parliament- Annexure -12.2).
1.3 RBI Deputy Governor before SFC stated in Para 32 of SFC Report, that "RBI has not been operating the clearing system to generate income. Income generation is only incidental. The profit to be generated by the new company would not be paid to the shareholders as dividend, but would be used for further development of payment system.
1.4 The Finance Ministry in reply to the SFC (Standing Finance Committee
Report - Annexure -12.3 stated in Para 37 of SFC Report that NPCI (when it is set up) would be subject to the regulation and supervision of RBI under the proposed ACT and the regulations framed there under. RBI would also have a nominee in the Board of Directors of the NPCI. Though majority shareholding of the NPCI has not been explicitly stated in the Articles of Association or Memorandum of Association, public sector banks would have significant representation on the Board of NPCI (based on their percentage share in the volume of payment transactions) and would therefore have substantial powers in the decision making process. However, later PSS Act prescribed minimum Shareholding of 51% by Public Sector banks.
1.5 On the issue of exercising control, Finance Ministry, in response, informed
SFC as stated in Para 38 of SFC Report"... Control through regulation and supervision can be used as effective instrument to ensure that NPCI operates in public interest. It is primarily for this reason that NPCI is going to be registered under Section 25 of the Companies Act whereby, the profit would not be distributed to the shareholders but would be utilized for ploughing back into the business of NPCI. This will financially strengthen NPCI and enable it to introduce more efficient and customer friendly payment modes and increase the reach of the payment systems to smaller towns and rural areas."
1.6 To implement the Payments and Settlements Act, 2007, Reserve Bank of India and Indian Banks Association established NPCI as a 'Not for Profit
Company' u/s 25 of the Companies Act, 1956 on 19/12/2008 with the certificate of commencement of business issued on 20/04/2009 by the 9
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